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2022 (1) TMI 262 - AT - Insolvency and BankruptcyWithdrawal of CIRP Application filed u/s 12 A of IBC - settlement between the Appellants and the Corporate Debtor - two Financial Creditors out of which one having 17% of voting shares has dissented to allow withdrawal - requirement of consent/approval form CoC for withdrawal of Application - HELD THAT - The Hon ble Supreme Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. 2019 (1) TMI 1508 - SUPREME COURT has held that at any stage, before a Committee of Creditors is constituted, a party can approach National Company Law Tribunal (NCLT) directly and that the Tribunal may, in exercise of its inherent powers under Rule 11 of NCLT Rules, allow or disallow an application for withdrawal or settlement - The Hon ble Supreme Court held that Approval of ninety percent voting share is mandated when Committee of Creditors is already constituted and is in existence. In the present case, the Application under Section 12A was filed on 25.08.2021 on which date settlement between the Appellants and the Corporate Debtor had already been entered. On the day when the Application was filed, there was no requirement of approval of ninety percent of voting share of Committee of Creditors - entire dues of the Appellant were paid by the Corporate Debtor under Memorandum of Settlement dated 25.08.2021. An Application was also filed on 25.08.2021 i.e. before the constitution of the Committee of Creditors. There was no requirement of directing for obtaining approval of ninety percent vote of Committee of Creditors for considering the Application. There was no fresh Application before the Adjudicating Authority apart from Application dated 25.08.2021 which was filed prior to the constitution of Committee of Creditors. The Adjudicating Authority without considering the facts and sequence of the events had refused to entertain the Application on the ground that it is not supported by ninety percent vote of Committee of Creditors - present is a case where the Application for withdrawal ought to be allowed permitting withdrawal of Corporate Insolvency Resolution Process. Appeal allowed.
Issues Involved:
1. Requirement of Committee of Creditors' approval for withdrawal of application under Section 12A of the Insolvency and Bankruptcy Code, 2016. 2. Validity of the withdrawal application filed before the constitution of the Committee of Creditors. 3. Impact of settlement between the parties on the CIRP process. 4. Legal precedents relevant to the withdrawal of applications under Section 12A. Detailed Analysis: 1. Requirement of Committee of Creditors' approval for withdrawal of application under Section 12A of the Insolvency and Bankruptcy Code, 2016: The judgment addresses whether the approval of the Committee of Creditors (CoC) is necessary for the withdrawal of an application under Section 12A of the Insolvency and Bankruptcy Code, 2016. Section 12A states, "The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified." This implies that the approval of ninety percent of the CoC is required only after the CoC is constituted. 2. Validity of the withdrawal application filed before the constitution of the Committee of Creditors: The judgment clarifies that if a withdrawal application is filed before the constitution of the CoC, the requirement of obtaining ninety percent approval from the CoC does not apply. Regulation 30A(1)(a) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, supports this by stating that an application for withdrawal can be made before the constitution of the CoC by the applicant through the interim resolution professional. The judgment cites the Supreme Court's decision in "Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors." which allows the NCLT to exercise its inherent powers under Rule 11 to permit withdrawal before the CoC is constituted. 3. Impact of settlement between the parties on the CIRP process: The judgment highlights that the settlement between the appellant and the corporate debtor was reached on 25.08.2021, before the CoC was constituted. The settlement included payments through demand drafts and a cheque, with the cheque amount being subsequently paid via RTGS before the adjudicating authority's order on 29.09.2021. Given that the entire payment was made as per the settlement, there was no outstanding debt from the corporate debtor to the appellant, justifying the withdrawal of the CIRP application. 4. Legal precedents relevant to the withdrawal of applications under Section 12A: The judgment references several legal precedents to support its conclusions: - The Supreme Court's decision in "Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors." which allows for withdrawal applications to be considered by the NCLT before the CoC is constituted. - The Supreme Court's decision in "Kamal K. Singh vs. Dinesh Gupta & Anr." where the withdrawal application was allowed despite the CoC not being constituted. - The NCLAT's decision in "Sunil Tandon vs. Manoj Kumar Anand, I.R.P. & Ors." which allowed a withdrawal application filed before the CoC's constitution. - The NCLAT's decision in "Anuj Tejpal vs. Rakesh Yadav & Anr." which upheld the principle that substantive law takes precedence over regulations, allowing for withdrawal applications before CoC constitution under Rule 11 of NCLT Rules. Conclusion: The judgment concludes that the application for withdrawal under Section 12A, filed before the constitution of the CoC, does not require the approval of ninety percent of the CoC. The settlement between the parties and the subsequent full payment to the appellant justified the withdrawal of the CIRP application. The adjudicating authority's order requiring CoC approval was set aside, and the withdrawal application was allowed. The appeals were thus allowed, with no order as to costs.
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